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Growth vs defensive stocks: the Covid-19 impact on Australian markets

‘At the end of a growth scare when recession fears emerge, secular growth stocks typically underperform defensives.’

Market musings and growth

Was the vicious sell-off we’ve seen in some of the ASX’s top growth names an inevitability? Or maybe the better question is could (or should) we have seen it coming?

Of course posing that question is not to imply that anyone could have predicted the emergence of the coronavirus (Covid-19) pandemic; black swan events are inherently unpredictable. But, according to some analysts, the signs of economic and market deterioration were there, for those who bothered to look, that is.

Mike Wilson from Morgan Stanely was one such analyst ‘looking’. In his recent Thoughts on the Market podcast, he argued that the pull-back we are now experiencing is actually part of a ‘cyclical bear market’ that started all the way back in 2018.

‘The coronavirus and oil price declines are simply the final disruptions to an already exhausted US and global economic expansion,’ he stylishly elaborated.

Because of this, the economy – in Wilson’s words – were ‘destined’ for a recession; a state which he said has now become the base case for markets.

In stark contrast, late last year, CNBC ran – in what likely looked like click-bait at the time – a story titled 'Investors should short growth stocks'.

Surely some laughs were had! After all, 2019 was a very strong year for global equity markets. The tech-focused FANG cohort had come back to life – and Australia’s own WAAAX collection (which in crisis times would prove a poor imitator to their US idols), were also on their way to delivering investors mouth-watering returns.

Growth was well and truly in vogue.

Of course, the music has very much stopped at this point.

At the time of writing, total global cases and deaths stemming from Covid-19 stood at 375,438 and 16,363, respectively. Markets, worriedly pricing in the economic fallout from this pandemic, have been crushed in the last month.

Morgan Stanley is of the opinion that the US economy will plunge 30% in Q2, according to Bloomberg. Oil markets have collapsed. Iron ore prices remain ‘strangely’ elevated. And some market commentators are even theorising that we could have another great depression on our hands.

Growth stocks, as you’d imagine, have not held up well.

In that same CNBC piece that we referenced above, Morgan Stanley’s Mike Wilson said at the time:

‘At the end of a growth scare when recession fears emerge, secular growth stocks typically underperform defensives.’

The real story – at least with Australian stocks – seems a shade more complex than that.

For example, below is the performance of some of the ASX’s most popular growth names over the last month.

ASX Growth


Share Price

1-Month Performance




A2 Milk















Pro Medicus












Interestingly, though the above listed growth stocks have suffered heavy declines, as the next table shows, some of the ASX’s most revered defensive stocks or 'bond proxies' have in places faced comparably steep losses.

Indeed, as shown below and derived from Macquarie Wealth Management’s recent Defensives and Bond Proxies Strategy Portfolio set-up, no equities have been spared from the heavy selling pressure we have witnessed over the last month.

ASX Defensive


Share Price

1-Month Performance







GPT Group



Spark Infrastructure






Sydney Airport









Ramsay Health Care



As we have said before: equities are equities – though they may provide large opportunities for speculators and investors – the cost is an equally large set of risks.

Or, as the Wall Street Journal aptly wrote in 2012:

‘The truth is that stocks are risky no matter how long you hold them. Yes, equities can be expected to produce a superior average return in comparison to safer investments. That's as it should be, because the higher return compensates investors for taking the added risk.’

How to trade defensive and growth stocks

What are your thoughts: have some of the ASX’s top growth and defensive stocks been oversold, or are there more losses still to come? You can use CFDs to trade both rising and falling markets, through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) a2 Milk, using CFDs, follow these easy steps:

  • Create an IG Trading Account or log in to your existing account
  • Enter ‘A2M’ or ‘A2 Milk’ in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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